Harmonic Drive Systems is a manufacturer of mechanical components featuring compact precision speed reducer Harmonic Drive®, a strain wave gearing device, as its core product. In addition to producing and selling precision speed reducers with different mechanisms, such as the planetary gear reducers AccuDrive® and Harmonic Planetary®, the company sells mechatronics products that combine actuators and controllers. Its reducers, along with other devices such as servomotors and linear guides, are among the key devices used for precision positioning. To date, HDSI has accumulated production know-how, and there is no other manufacturer that can mass-produce strain wave gearings with the same precision and durability as HDSI, positioning the company as a global niche leader.
Key applications include industrial robots (54.0% of parent sales in FY03/21), semiconductor production equipment (11.4%), metalworking machinery (4.8%), motor gear boxes (5.4%), automotive parts (4.0%), and flat panel display (FPD) production equipment. Sales by region (by destination) are 59.7% to Asia including Japan, 26.4% to Europe, and 13.9% to North America. However, the company’s customers (industrial machinery manufacturers, etc.) sell products globally, and orders and sales tend to fluctuate in line with global capital investment trends.
The company supplies high value-added products as a global niche leader, and Shared Research estimates marginal profit ratio to be around 55% at the parent level. Since the capital investment cycle is more volatile than the overall economic cycle and the company generates a high marginal profit ratio, its earnings fluctuate significantly depending on capital investment trends. Its most recent peak performance was in FY03/19 with sales of JPY67.8bn, operating profit of JPY16.9bn, and net income of JPY11.6bn, all of which were record highs.
HDSI aims to boost demand for its products by proposing new applications to its main customers, while also developing applications for industries with demand cycles that differ from the general capital investment cycle. The focus markets for the near term include collaborative robots, healthcare, space, and animatronics.
Earnings trends
FY03/22 earnings results: HDSI reported sales of JPY57.1bn (+54.1% YoY), operating profit of JPY8.8bmn (roughly 10.1x YoY), recurring profit of JPY9.1bn (roughly 6.7x YoY), and net income attributable to owners of the parent of JPY6.6bn (roughly 10.0x YoY). EPS was JPY69.0. Although the company achieved an earnings recovery with both sales and profit increasing YoY amid higher sales (stemming mostly from stronger orders for reducers, mainly for industrial robots) and lower costs, OPM was limited to 15.3%. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).
FY03/23 forecast: The company forecasts sales of JPY75.0bn (+31.4% YoY), operating profit of JPY13.0bn (+48.7% YoY), recurring profit of JPY13.0bn (+42.7% YoY), net income attributable to owners of the parent of JPY9.0bn (+35.5% YoY), and EPS of JPY93.5. The company sees sales reaching record high levels, based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history, but sees OPM remaining at 17.3% owing to higher upfront costs associated with capacity expansion. The company forecasts an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).
On May 21, 2021, the company announced a new medium-term plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn, operating profit of JPY15.0bn, OPM of at least 20%, and ROE of least 10%. Given that the company did not achieve the targets in its previous medium-term plan, partly due to US-China trade friction, it prioritized achievable forecasts. The company sees promising markets for its products as collaborative robots (co-bots), semiconductor production equipment, automotive components, surgical assistance robots, electronic vertical takeoff and landing (eVTOL) vehicles, and the space industry, in addition to FA robots, a long-standing market for the company. However, Shared Research expects this plan to be comprehensively updated in May 2022 to reflect the subsequently announced plans for expansion of production capacity.
Strengths and weaknesses
HDSI’s strengths include its core HarmonicDrive® product technology, the secular growth of markets for its products, and its solid financial position. On the other hand, the company’s weaknesses include volatile short-term sales trends, small batch production limiting growth, and limited ability to develop and market new products (see Strengths and weaknesses section below).
Key financial data
Income statement
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
FY03/23
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
Sales
21,084
25,951
28,278
30,069
54,340
67,809
37,488
37,034
57,088
75,000
YoY
16.3%
23.1%
9.0%
6.3%
80.7%
24.8%
-44.7%
-1.2%
54.1%
31.4%
Gross profit
9,118
12,122
13,286
13,867
25,703
30,446
12,003
12,583
22,426
-
YoY
23.7%
32.9%
9.6%
4.4%
85.4%
18.5%
-60.6%
4.8%
78.2%
-
Gross profit margin
43.2%
46.7%
47.0%
46.1%
47.3%
44.9%
32.0%
34.0%
39.3%
-
Operating profit
4,668
7,067
7,618
7,814
12,316
16,624
-195
866
8,740
13,000
YoY
35.9%
51.4%
7.8%
2.6%
57.6%
35.0%
-
-
909.3%
48.7%
Operating profit margin
22.1%
27.2%
26.9%
26.0%
22.7%
24.5%
-0.5%
2.3%
15.3%
17.3%
Recurring profit
4,823
7,525
7,830
7,959
11,946
17,185
236
1,367
9,108
13,000
YoY
34.9%
56.0%
4.0%
1.6%
50.1%
43.9%
-98.6%
478.2%
566.4%
42.7%
Recurring profit margin
22.9%
29.0%
27.7%
26.5%
22.0%
25.3%
0.6%
3.7%
16.0%
17.3%
Net income
2,994
4,834
5,002
19,732
7,777
11,322
-1,095
662
6,644
9,000
YoY
52.7%
61.5%
3.5%
294.5%
-60.6%
45.6%
-
-
902.9%
35.5%
Net margin
14.2%
18.6%
17.7%
65.6%
14.3%
16.7%
-2.9%
1.8%
11.6%
12.0%
Per-share data (split-adjusted)
Issued shares FY-end('000 shares)
94,749
94,749
94,749
94,749
96,315
96,315
96,315
96,315
96,315
-
EPS (JPY)
32.7
52.8
54.6
215.4
86.9
120.5
-8.7
6.9
69.0
93.5
Dividend per share (JPY)
9.7
14.3
18.0
20.0
26.0
38.0
20.0
20.0
21.0
29.0
Book value per share (JPY)
320.1
395.7
405.3
600.5
1,035.3
1,082.3
1,011.9
1,068.8
1,026.9
-
Balance sheet (JPYmn)
Cash and deposits
9,057
12,117
12,876
12,040
29,424
18,806
19,554
21,142
19,901
Total current assets
17,930
23,216
23,923
27,737
53,394
44,886
35,988
38,118
45,873
Tangible fixed assets
5,834
7,146
9,807
14,645
21,306
40,853
45,500
41,992
43,968
Intangible assets
179
177
182
42,623
43,582
39,539
35,792
41,003
40,436
Investments and other assets
14,684
18,902
14,838
11,784
15,706
12,718
10,147
18,915
13,014
Total assets
38,626
49,441
48,750
96,788
139,382
142,872
131,848
140,028
143,290
Accounts payable
1,742
2,160
2,308
2,673
3,162
3,513
1,473
2,413
3,857
Short-term debt
62
285
252
15,217
57
26
972
1,108
2,270
Total current liabilities
5,079
7,176
5,945
23,935
13,630
15,945
5,128
7,954
14,127
Long-term debt
156
460
641
449
1,529
1,726
5,991
5,221
14,618
Total fixed liabilities
3,026
4,584
3,914
15,453
17,034
13,650
20,002
22,014
30,306
Total liabilities
8,105
11,760
9,859
39,388
30,664
29,595
25,130
29,968
44,434
Total net assets
30,521
37,681
38,891
57,400
108,719
113,277
106,718
110,060
98,856
Cash flow statement(JPYmn)
Cash flows from operating activities
3,643
5,495
6,499
7,226
9,234
15,122
10,950
9,555
9,882
Cash flows from investing activities
-1,103
-2,104
-4,394
-32,523
-8,171
-22,400
-12,537
-4,181
-19,491
Cash flows from financing activities
-5,591
-738
-1,385
24,648
17,494
-3,271
2,362
-3,612
8,124
Financial ratios
Total interest-bearing debt
218
745
892
15,666
1,586
1,752
6,963
6,329
16,887
ROA (RP-based)
12.8%
17.1%
15.9%
10.9%
10.1%
12.2%
0.2%
1.0%
6.4%
ROE
11.0%
14.7%
13.6%
42.8%
9.7%
10.6%
-1.0%
0.6%
6.6%
Equity ratio
75.9%
73.3%
76.1%
56.8%
75.4%
76.3%
77.2%
73.5%
69.0%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: EPS " data-candidates="[{"type":2,"companyId":null,"_id":"62622f47ff7cb5c862e6af3b","en":"EPS "}]" class="translated-term">EPS and dividend per share figures for FY03/15 have been adjusted for the 3-for-1 stock split that took place on October 1, 2014. Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Trends and outlook
Quarterly orders (parent)
Parent orders by application
By application (parent)
FY03/21
FY03/22
FY03/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
% of Est.
FY Est.
Orders
4,984
5,131
7,586
12,943
18,357
21,515
19,208
13,072
YoY
75.6%
65.9%
58.4%
137.6%
268.3%
319.3%
153.2%
1.0%
Semiconductor production equipment
649
575
834
2,006
2,640
3,689
3,623
1,943
YoY
238.0%
76.9%
100.5%
189.9%
306.8%
541.6%
334.4%
-3.1%
Flat panel display equipment
172
162
224
298
505
614
751
501
YoY
123.4%
90.6%
48.3%
11.2%
193.6%
279.0%
235.3%
68.1%
Industrial robot applications
2,764
2,765
4,279
7,377
10,840
11,808
10,744
6,729
YoY
218.1%
136.3%
99.5%
208.7%
292.2%
327.1%
151.1%
-8.8%
Gear boxes (for electric motor manufacturers)
318
213
399
614
959
665
757
630
YoY
70.1%
9.2%
-4.5%
111.7%
201.6%
212.2%
89.7%
2.6%
Machine tools
220
248
413
415
619
730
583
483
YoY
15.2%
20.4%
68.6%
66.7%
181.4%
194.4%
41.2%
16.4%
Oil-drilling equipment
41
-
-
-
-
-
-
-
YoY
-46.1%
-
-
-
-
-
-
-
Automotive
47
350
332
330
831
1,222
458
712
YoY
-89.0%
-12.7%
11.8%
-3.5%
1,668.1%
249.1%
38.0%
115.8%
Other
769
816
1,101
1,900
1,960
2,782
2,291
2,071
YoY
-5.8%
26.1%
3.2%
75.1%
154.9%
240.9%
108.1%
9.0%
Sales
5,359
4,681
6,386
7,836
8,965
10,059
10,567
11,527
100.3%
41,000
YoY
-10.9%
3.7%
60.5%
48.4%
67.3%
114.9%
65.5%
47.1%
69.0%
Semiconductor production equipment
661
500
704
911
1,417
1,387
1,585
1,763
YoY
-3.2%
4.4%
61.8%
46.9%
114.4%
177.4%
125.1%
93.5%
Flat panel display equipment
217
158
185
209
216
251
315
415
YoY
95.5%
77.5%
-7.0%
-13.3%
-0.5%
58.9%
70.3%
98.6%
Industrial robot applications
2,587
2,453
3,444
4,626
4,498
5,085
5,889
5,767
YoY
-7.7%
15.6%
132.1%
86.9%
73.9%
107.3%
71.0%
24.7%
Gear boxes (for electric motor manufacturers)
338
279
301
401
495
517
580
608
YoY
2.1%
78.8%
-0.3%
20.4%
46.4%
85.3%
92.7%
51.6%
Machine tools
259
227
347
327
374
349
418
448
YoY
-42.3%
-21.7%
32.4%
25.8%
44.4%
53.7%
20.5%
37.0%
Oil-drilling equipment
134
-
-
-
-
-
-
-
YoY
44.1%
-
-
-
-
-
-
-
Automotive
88
232
384
275
537
1,074
473
570
YoY
-78.7%
-45.3%
23.1%
-8.3%
510.2%
362.9%
23.2%
107.3%
Other
1,072
829
1,018
1,083
1,426
1,395
1,304
1,954
YoY
-4.8%
-9.7%
11.7%
7.7%
33.0%
68.3%
28.1%
80.4%
Source: Shared Research based on company data
Parent orders by product
FY03/21
FY03/22
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Orders
Speed Reducers
4,086
4,198
6,510
11,386
16,476
18,989
16,916
11,312
(Domestic)
3,351
3,224
5,191
8,026
13,519
14,613
13,780
8,849
(Exports)
735
974
1,319
3,360
2,957
4,376
3,136
2,463
Mechatronics
897
933
1,084
1,557
1,880
2,525
2,291
1,760
(Domestic)
570
588
612
823
1,100
1,110
1,114
905
(Exports)
327
345
472
734
780
1,415
1,177
855
Total
4,984
5,131
7,586
12,943
18,357
21,515
19,208
13,072
(Domestic)
3,921
3,811
5,795
8,849
14,619
15,723
14,895
9,754
(Exports)
1,063
1,320
1,791
4,094
3,738
5,792
4,313
3,318
Sales
Speed Reducers
4,397
3,922
5,441
6,701
7,786
8,974
9,440
10,079
(Domestic)
3,343
3,206
4,238
5,166
5,550
7,196
7,753
7,736
(Exports)
1,054
716
1,203
1,535
2,236
1,778
1,687
2,343
Mechatronics
962
759
945
1,135
1,179
1,084
1,126
1,447
(Domestic)
611
492
555
696
654
656
687
823
(Exports)
351
267
390
439
525
428
439
624
Total
5,359
4,681
6,386
7,836
8,965
10,059
10,567
11,527
(Domestic)
3,953
3,698
4,792
5,861
6,204
7,853
8,441
8,559
(Exports)
1,406
983
1,594
1,975
2,761
2,206
2,126
2,968
YoY
Orders
Speed Reducers
97.2%
70.0%
64.6%
159.7%
303.2%
352.3%
159.8%
-0.6%
(Domestic)
128.6%
86.1%
92.1%
141.2%
303.4%
353.3%
165.5%
10.3%
(Exports)
21.3%
32.0%
5.4%
218.2%
302.3%
349.3%
137.8%
-26.7%
Mechatronics
16.9%
50.2%
30.1%
46.6%
109.6%
170.6%
111.3%
13.0%
(Domestic)
-9.1%
36.7%
10.7%
18.6%
93.0%
88.8%
82.0%
10.0%
(Exports)
133.6%
80.6%
68.6%
99.5%
138.5%
310.1%
149.4%
16.5%
Total
75.6%
65.9%
58.4%
137.6%
268.3%
319.3%
153.2%
1.0%
(Domestic)
87.4%
76.3%
78.0%
120.0%
272.8%
312.6%
157.0%
10.2%
(Exports)
42.3%
41.9%
16.8%
187.5%
251.6%
338.8%
140.8%
-19.0%
Sales
Speed Reducers
-12.3%
10.3%
75.0%
53.3%
77.1%
128.8%
73.5%
50.4%
(Domestic)
-8.5%
12.5%
85.0%
71.3%
66.0%
124.5%
82.9%
49.7%
(Exports)
-22.4%
1.6%
46.9%
13.3%
112.1%
148.3%
40.2%
52.6%
Mechatronics
-3.9%
-20.6%
8.9%
24.9%
22.6%
42.8%
19.2%
27.5%
(Domestic)
2.3%
-30.0%
5.5%
19.0%
7.0%
33.3%
23.8%
18.2%
(Exports)
-13.1%
5.5%
14.0%
35.5%
49.6%
60.3%
12.6%
42.1%
Total
-10.9%
3.7%
60.5%
48.4%
67.3%
114.9%
65.5%
47.1%
(Domestic)
-7.0%
4.1%
70.1%
62.8%
56.9%
112.4%
76.1%
46.0%
(Exports)
-20.2%
2.6%
37.2%
17.6%
96.4%
124.4%
33.4%
50.3%
QoQ
Orders
Speed Reducers
-6.8%
2.7%
55.1%
74.9%
44.7%
15.3%
-10.9%
-33.1%
(Domestic)
0.7%
-3.8%
61.0%
54.6%
68.4%
8.1%
-5.7%
-35.8%
(Exports)
-30.4%
32.5%
35.4%
154.7%
-12.0%
48.0%
-28.3%
-21.5%
Mechatronics
-15.5%
4.0%
16.2%
43.6%
20.7%
34.3%
-9.3%
-23.2%
(Domestic)
-17.9%
3.2%
4.1%
34.5%
33.7%
0.9%
0.4%
-18.8%
(Exports)
-11.1%
5.5%
36.8%
55.5%
6.3%
81.4%
-16.8%
-27.4%
Total
-8.5%
2.9%
47.8%
70.6%
41.8%
17.2%
-10.7%
-31.9%
(Domestic)
-2.5%
-2.8%
52.1%
52.7%
65.2%
7.6%
-5.3%
-34.5%
(Exports)
-25.4%
24.2%
35.7%
128.6%
-8.7%
54.9%
-25.5%
-23.1%
Sales
Speed Reducers
0.6%
-10.8%
38.7%
23.2%
16.2%
15.3%
5.2%
6.8%
(Domestic)
10.8%
-4.1%
32.2%
21.9%
7.4%
29.7%
7.7%
-0.2%
(Exports)
-22.2%
-32.1%
68.0%
27.6%
45.7%
-20.5%
-5.1%
38.9%
Mechatronics
5.8%
-21.1%
24.5%
20.1%
3.9%
-8.1%
3.9%
28.5%
(Domestic)
4.4%
-19.5%
12.8%
25.4%
-6.0%
0.3%
4.7%
19.8%
(Exports)
8.3%
-23.9%
46.1%
12.6%
19.6%
-18.5%
2.6%
42.1%
Total
1.5%
-12.7%
36.4%
22.7%
14.4%
12.2%
5.1%
9.1%
(Domestic)
9.8%
-6.5%
29.6%
22.3%
5.9%
26.6%
7.5%
1.4%
(Exports)
-16.3%
-30.1%
62.2%
23.9%
39.8%
-20.1%
-3.6%
39.6%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Quarterly trends and results
Cumulative
FY03/21
FY03/22
FY03/22
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
% of Est.
FY Est.
Sales
9,318
17,703
26,646
37,034
11,901
26,341
41,556
57,088
101.0%
56,500
YoY
-20.0%
-18.0%
-9.9%
-1.2%
27.7%
48.8%
56.0%
54.1%
52.6%
Gross profit
3,051
5,505
8,574
12,583
4,951
10,150
16,433
22,426
YoY
-31.7%
-25.7%
-9.9%
4.8%
62.3%
84.4%
91.7%
78.2%
Gross profit margin
32.7%
31.1%
32.2%
34.0%
41.6%
38.5%
39.5%
39.3%
SG&A expenses
2,836
5,586
8,458
11,717
3,167
6,623
9,919
13,686
YoY
-4.2%
-7.3%
-3.4%
-3.9%
11.7%
18.6%
17.3%
16.8%
SG&A ratio
30.4%
31.6%
31.7%
31.6%
26.6%
25.1%
23.9%
24.0%
Operating profit
150
-212
-83
866
1,784
3,527
6,514
8,740
106.6%
8,200
YoY
-89.6%
-
-
-
1,089.4%
-
-
909.3%
847.0%
Operating profit margin
1.6%
-1.2%
-0.3%
2.3%
15.0%
13.4%
15.7%
15.3%
14.5%
Recurring profit
247
85
220
1,367
1,708
3,566
6,752
9,108
111.1%
8,200
YoY
-82.7%
-94.3%
-74.3%
478.2%
591.3%
4,095.0%
2,968.9%
566.4%
499.9%
Recurring profit margin
2.7%
0.5%
0.8%
3.7%
14.3%
13.5%
16.2%
16.0%
14.5%
Net income
116
-16
-16
662
1,122
2,219
4,472
6,644
120.8%
5,500
YoY
-63.2%
-
-
-
867.1%
-
-
902.9%
730.2%
Net margin
1.2%
-0.1%
-0.1%
1.8%
9.4%
8.4%
10.8%
11.6%
9.7%
Quarterly
FY03/21
FY03/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
9,318
8,385
8,944
10,388
11,901
14,440
15,215
15,532
YoY
-20.0%
-15.5%
11.7%
31.4%
27.7%
72.2%
70.1%
49.5%
Gross profit
3,051
2,454
3,069
4,009
4,951
5,199
6,283
5,993
YoY
-31.7%
-16.7%
46.1%
61.0%
62.3%
111.8%
104.7%
49.5%
Gross profit margin
32.7%
29.3%
34.3%
38.6%
41.6%
36.0%
41.3%
38.6%
SG&A expenses
2,836
2,750
2,872
3,259
3,167
3,456
3,297
3,767
YoY
-4.2%
-10.3%
5.2%
-5.3%
11.7%
25.7%
14.8%
15.6%
SG&A ratio
30.4%
32.8%
32.1%
31.4%
26.6%
23.9%
21.7%
24.3%
Operating profit
150
-362
129
949
1,784
1,743
2,986
2,226
YoY
-89.6%
-
-
-
1,089.4%
-
2,215.0%
134.6%
Operating profit margin
1.6%
-4.3%
1.4%
9.1%
15.0%
12.1%
19.6%
14.3%
Recurring profit
247
-162
135
1,147
1,708
1,858
3,186
2,357
YoY
-82.7%
-
-
-
591.3%
-
2,259.9%
105.5%
Recurring profit margin
2.7%
-1.9%
1.5%
11.0%
14.3%
12.9%
20.9%
15.2%
Net income
116
-132
-
678
1,122
1,097
2,254
2,172
YoY
-63.2%
-
-
-
867.1%
-
-
220.1%
Net margin
1.2%
-1.6%
0.0%
6.5%
9.4%
7.6%
14.8%
14.0%
Source: Shared Research based on company data Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
By regional segment
By segment
FY03/21
FY03/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
9,318
8,385
8,944
10,388
11,901
14,440
15,215
15,532
YoY
-20.0%
-15.5%
11.7%
31.4%
27.7%
72.2%
70.1%
49.5%
Japan
5,035
4,570
5,525
6,983
7,657
9,552
9,806
10,259
YoY
-14.5%
-4.4%
48.6%
65.2%
52.1%
109.0%
77.5%
46.9%
North America
1,307
1,371
1,308
1,159
1,372
1,613
1,756
1,903
YoY
-28.4%
-22.7%
1.3%
-14.2%
5.0%
17.6%
34.3%
64.2%
Europe
2,976
2,443
2,111
2,245
2,872
3,276
3,653
3,370
YoY
-24.4%
-27.6%
-29.5%
-3.6%
-3.5%
34.1%
73.1%
50.1%
Recurring profit
247
-162
135
1,147
1,708
1,858
3,186
2,357
YoY
-82.7%
-
-
-
591.3%
-
2,259.9%
105.5%
Recurring profit margin
2.7%
-1.9%
1.5%
11.0%
14.3%
12.9%
20.9%
15.2%
Japan
912
515
1,147
2,236
2,529
2,735
3,491
3,134
YoY
-35.7%
24.4%
-
223.4%
177.4%
431.7%
204.3%
40.2%
Recurring profit margin
18.1%
11.3%
20.8%
32.0%
33.0%
28.6%
35.6%
30.6%
% of total
369.2%
-317.6%
849.7%
195.0%
148.1%
147.2%
109.6%
133.0%
North America
98
106
48
58
58
156
246
241
YoY
-73.2%
-77.3%
-42.8%
50.5%
-40.6%
47.3%
410.0%
315.1%
Recurring profit margin
7.5%
7.7%
3.7%
5.0%
4.2%
9.7%
14.0%
12.7%
% of total
39.6%
-65.4%
35.8%
5.1%
3.4%
8.4%
7.7%
10.2%
Europe
-47
-178
-372
-324
-58
-52
314
-32
YoY
-
-
-
-
-
-
-
-
Recurring profit margin
-1.6%
-7.3%
-17.6%
-14.4%
-2.0%
-1.6%
8.6%
-0.9%
% of total
-18.9%
110.1%
-275.4%
-28.2%
-3.4%
-2.8%
9.8%
-1.3%
Adjustments
-715
-605
-688
-823
-822
-981
-865
-987
Source: Shared Research based on company data Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Orders
Orders
FY03/21
FY03/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Orders
9,780
7,619
9,785
14,491
22,921
25,067
26,730
20,105
YoY
27.4%
36.6%
23.7%
63.4%
134.4%
229.0%
173.2%
38.7%
Japan
Total
4,860
4,573
6,798
10,436
17,046
18,601
18,008
11,586
YoY
52.8%
73.9%
59.3%
112.4%
250.7%
306.7%
164.9%
11.0%
Speed Reducers
4,156
3,857
6,023
9,436
15,639
17,169
16,562
10,363
YoY
71.1%
83.0%
69.7%
133.3%
276.3%
345.1%
175.0%
9.8%
Mechatronics
704
716
775
1,000
1,407
1,433
1,446
1,224
YoY
-6.4%
37.0%
7.8%
15.3%
99.7%
100.0%
86.7%
22.4%
North America
Total
1,854
1,049
1,093
1,309
2,572
2,551
4,064
4,110
YoY
25.5%
40.5%
-12.0%
-13.3%
38.7%
143.0%
271.7%
214.0%
Speed Reducers
907
529
646
547
1,256
1,379
1,947
1,878
YoY
-5.3%
35.1%
-2.7%
-46.0%
38.5%
160.8%
201.4%
243.4%
Mechatronics
948
521
447
762
1,316
1,172
2,117
2,232
YoY
81.9%
46.4%
-22.6%
53.3%
38.9%
125.0%
373.2%
193.0%
Europe
Total
3,065
1,997
1,894
2,746
3,303
3,915
4,658
4,408
YoY
1.6%
-9.3%
-21.0%
12.3%
7.8%
96.1%
145.9%
60.5%
Speed Reducers
2,347
1,094
1,348
1,740
2,588
3,013
3,421
3,092
YoY
14.6%
-29.4%
-31.3%
-3.1%
10.2%
175.4%
153.7%
77.7%
Mechatronics
718
903
546
1,006
716
903
1,237
1,316
YoY
-25.7%
38.3%
25.6%
54.7%
-0.3%
0.0%
126.7%
30.7%
Order backlog
9,174
8,181
9,406
13,415
24,741
35,117
46,044
50,346
YoY
-27.8%
1.6%
22.3%
49.8%
169.7%
329.3%
389.5%
275.3%
Japan
Total
2,898
2,786
4,047
7,378
16,713
25,481
33,014
33,727
YoY
-32.4%
41.7%
69.8%
135.9%
476.7%
814.8%
715.7%
357.1%
Speed Reducers
2,607
2,498
3,686
6,906
15,658
23,816
30,792
31,420
YoY
-31.3%
40.7%
72.0%
147.0%
500.7%
853.5%
735.3%
355.0%
Mechatronics
292
288
361
473
1,055
1,665
2,221
2,307
YoY
-41.0%
51.6%
49.8%
42.6%
261.8%
478.8%
515.6%
387.8%
North America
Total
2,650
2,303
2,050
2,149
3,540
4,475
6,887
9,328
YoY
-15.9%
14.9%
5.8%
1.3%
33.6%
94.4%
235.9%
334.0%
Speed Reducers
1,544
1,252
1,106
1,012
1,634
2,141
3,064
4,011
YoY
-29.3%
-10.6%
-14.1%
-31.5%
5.8%
71.0%
176.9%
296.4%
Mechatronics
1,106
1,050
944
1,138
1,907
2,334
3,823
5,318
YoY
14.6%
74.5%
45.4%
76.4%
72.3%
122.3%
305.1%
367.4%
Europe
Total
3,626
3,093
3,309
3,887
4,488
5,161
6,143
7,291
YoY
-31.2%
-24.3%
-1.8%
4.8%
23.8%
66.9%
85.7%
87.6%
Speed Reducers
2,870
2,321
2,399
2,574
3,136
3,749
4,464
5,087
YoY
-18.7%
-15.1%
-4.6%
-13.5%
9.3%
61.5%
86.0%
97.6%
Mechatronics
756
771
909
1,313
1,351
1,412
1,680
2,204
YoY
-56.6%
-42.9%
6.5%
79.0%
78.8%
83.1%
84.7%
67.8%
Source: Shared Research based on company data
Production
Production
FY03/21
FY03/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Production
8,771
8,471
8,687
10,372
11,753
15,029
15,136
14,988
YoY
-18.0%
-19.2%
25.8%
36.2%
34.0%
77.4%
74.2%
44.5%
Japan
Total
5,806
5,353
6,107
7,797
8,611
11,068
10,832
10,840
YoY
-10.4%
-14.0%
49.8%
49.5%
48.3%
106.8%
77.4%
39.0%
Speed Reducers
4,872
4,372
5,140
6,594
7,296
9,627
9,504
9,521
YoY
-2.2%
-11.1%
66.5%
63.2%
49.7%
120.2%
84.9%
44.4%
Mechatronics
934
981
967
1,203
1,315
1,442
1,328
1,319
YoY
-37.8%
-24.7%
-2.3%
2.3%
40.7%
47.0%
37.3%
9.6%
North America
Total
928
1,069
901
703
869
1,120
1,313
1,390
YoY
-17.0%
-25.8%
-6.1%
-19.4%
-6.4%
4.8%
45.8%
97.6%
Speed Reducers
570
629
531
371
460
618
800
785
YoY
-26.1%
-25.7%
-21.3%
-25.2%
-19.3%
-1.7%
50.8%
111.7%
Mechatronics
358
439
370
332
409
502
513
604
YoY
3.1%
-26.0%
29.9%
-11.7%
14.1%
14.2%
38.6%
81.8%
Europe
Total
2,036
2,049
1,679
1,871
2,274
2,840
2,991
2,758
YoY
-34.3%
-27.2%
-10.1%
22.7%
11.7%
38.6%
78.1%
47.4%
Speed Reducers
1,567
1,532
1,247
1,371
1,784
2,161
2,345
2,170
YoY
-31.4%
-28.8%
-1.0%
39.4%
13.8%
41.1%
88.1%
58.3%
Mechatronics
469
517
432
500
489
679
646
588
YoY
-42.3%
-22.1%
-28.8%
-7.7%
4.3%
31.4%
49.4%
17.5%
Source: Shared Research based on company data
Sales
Sales
FY03/21
FY03/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
9,318
8,385
8,944
10,388
11,901
14,440
15,215
15,532
YoY
-20.0%
-15.5%
11.7%
31.4%
27.7%
72.2%
70.1%
49.5%
Japan
Total
5,035
4,570
5,525
6,983
7,657
9,552
9,806
10,259
YoY
-13.4%
-3.6%
48.9%
65.6%
52.1%
109.0%
77.5%
46.9%
Speed Reducers
4,301
3,952
4,828
6,104
6,837
8,736
8,928
9,200
YoY
-14.4%
0.7%
58.4%
77.3%
59.0%
121.1%
84.9%
50.7%
Mechatronics
735
619
697
879
820
816
878
1,059
YoY
-6.7%
-24.3%
5.0%
13.3%
11.6%
31.9%
26.0%
20.5%
North America
Total
1,307
1,371
1,308
1,159
1,372
1,613
1,756
1,903
YoY
-28.7%
-22.9%
1.0%
-14.3%
5.0%
17.6%
34.3%
64.2%
Speed Reducers
826
803
769
617
717
872
1,066
1,029
YoY
-27.0%
-26.2%
-6.8%
-21.9%
-13.1%
8.5%
38.5%
66.9%
Mechatronics
482
568
538
542
655
741
690
874
YoY
-31.5%
-17.7%
14.8%
-3.6%
36.0%
30.5%
28.2%
61.2%
Europe
Total
2,976
2,443
2,111
2,245
2,872
3,276
3,653
3,370
YoY
-25.7%
-28.3%
-29.6%
-3.9%
-3.5%
34.1%
73.1%
50.1%
Speed Reducers
2,313
1,705
1,486
1,616
2,150
2,429
2,707
2,566
YoY
-17.8%
-27.4%
-29.1%
8.1%
-7.1%
42.5%
82.1%
58.8%
Mechatronics
663
738
625
630
722
847
947
803
YoY
-44.3%
-30.1%
-30.7%
-25.2%
9.0%
14.7%
51.6%
27.6%
Source: Shared Research based on company data
Sales by region (by destination)
Sales by region
FY03/21
FY03/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
9,318
8,385
8,944
10,388
11,901
14,440
15,215
15,532
YoY
-20.0%
-15.5%
11.7%
31.4%
27.7%
72.2%
70.1%
49.5%
Japan
3,979
3,717
4,887
5,839
6,255
7,733
8,526
8,666
YoY
-4.5%
4.7%
72.6%
66.4%
57.2%
108.0%
74.4%
48.4%
% of total
42.7%
44.3%
54.6%
56.2%
52.6%
53.6%
56.0%
55.8%
North America
1,307
1,371
1,308
1,159
1,372
1,613
1,756
1,903
YoY
-28.4%
-22.7%
1.3%
-14.2%
5.0%
17.6%
34.3%
64.2%
% of total
14.0%
16.4%
14.6%
11.2%
11.5%
11.2%
11.5%
12.3%
Europe
2,976
2,443
2,111
2,245
2,872
3,276
3,653
3,370
YoY
-24.4%
-27.6%
-29.5%
-3.6%
-3.5%
34.1%
73.1%
50.1%
% of total
31.9%
29.1%
23.6%
21.6%
24.1%
22.7%
24.0%
21.7%
Other regions
1,057
853
637
1,145
1,401
1,819
1,280
1,593
YoY
-38.6%
-30.6%
-28.2%
59.4%
32.6%
113.2%
100.9%
39.2%
% of total
11.3%
10.2%
7.1%
11.0%
11.8%
12.6%
8.4%
10.3%
Source: Shared Research based on company data
Full-year FY03/22 results (out May 13, 2022)
Full-year results summary
Full-year FY03/22 results were as follows:
Sales: JPY57.1bn (+54.1% YoY, versus company forecast of JPY56.5bn)
Net income attributable to owners of the parent: JPY6.6bn (roughly 10.0x YoY, forecast JPY5.5bn)
EPS was JPY69.0. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).
Both sales and profit surpassed the company's forecasts, driven by higher orders for mainstay reducers, mainly for the industrial robots sector (especially in China) and the SPE sector, which offset lackluster demand from the automotive sector. Operating profit grew roughly 10.1x YoY, on the back of the aforementioned growth in sales, as well as cost reductions and yen devaluation. However, OPM recovered no further than 15.3%, owing to higher depreciation costs accompanying capacity expansion, increased transportation costs, and growth in R&D expenditure. Back in FY03/19, before US-China trade tension escalated, HDSI had an OPM of 24.5%, and the five-year average for FY03/15–19 was 25.7%.
Q4 (January–March 2022, three months) results summary
Q4 FY03/22 (January–March 2022) results were as follows:
Sales: JPY15.5bn (+49.5% YoY)
Operating profit: JPY2.2bn (roughly 2.3x YoY)
OPM: 14.3% (+5.2pp YoY)
Recurring profit: JPY2.4bn (roughly 2.1x YoY)
Net income attributable to owners of the parent: JPY2.2bn (roughly 3.2x YoY)
On a quarterly (three-month) basis, sales and operating profit both increased YoY for the sixth consecutive quarter. Despite YoY growth in both sales and profit, OPM recovered no further than 14.3%, owing to higher depreciation costs, increased transportation costs, and growth in R&D expenditure.
Orders (non-consolidated) rose 1.0% YoY to JPY13.1bn in Q4. Although growth was maintained on a YoY basis, orders were down from JPY18.4bn in Q1 (April–Jun 2021), JPY21.5bn in Q2 (July–September 2021), and JPY19.2bn in Q3 (October–December 2021). Due in large part to seasonal factors, though, Q4 orders were the third highest for a single quarter.
Shared Research plans an update based on the forthcoming results briefing and contact with the company.
FY03/23 company forecast
Cons.
FY03/21
FY03/22
FY03/23
(JPYmn)
1H
2H
FY
1H
2H
FY
1H Est.
2H Est.
FY Est.
Sales
17,703
19,331
37,034
26,341
30,747
57,088
35,000
40,000
75,000
YoY
-18.0%
-10.4%
-1.2%
48.8%
-
54.1%
32.9%
8.0%
31.4%
Gross profit
5,505
7,078
12,583
10,150
12,276
22,426
-
-
YoY
-25.7%
-4.5%
4.8%
84.4%
-
78.2%
-
-
-
Gross profit margin
31.1%
36.6%
34.0%
38.5%
39.9%
39.3%
-
-
-
SG&A expenses
5,586
6,131
11,717
6,623
7,064
13,686
-
-
YoY
-7.3%
1.7%
-3.9%
18.6%
-
16.8%
-
-
-
SG&A ratio
31.6%
31.7%
31.6%
25.1%
23.0%
24.0%
-
-
-
Operating profit
-212
1,078
866
3,527
5,213
8,740
5,500
7,500
13,000
YoY
-
-13.8%
-
-
-
909.3%
55.9%
766.1%
48.7%
Operating profit margin
-1.2%
5.6%
2.3%
13.4%
17.0%
15.3%
15.7%
18.8%
17.3%
Recurring profit
85
1,282
1,367
3,566
5,542
9,108
5,500
7,500
13,000
YoY
-94.3%
-13.5%
478.2%
4,095.0%
-
566.4%
54.2%
448.7%
42.7%
Recurring profit margin
0.5%
6.6%
3.7%
13.5%
18.0%
16.0%
15.7%
18.8%
17.3%
Net income
-16
678
662
2,219
4,425
6,644
3,500
5,500
9,000
YoY
-
358.4%
-
-
-
902.9%
57.8%
730.2%
35.5%
Net margin
-0.1%
3.5%
1.8%
8.4%
14.4%
11.6%
10.0%
13.8%
12.0%
Capital expenditures
835
1,124
1,959
4,074
-
-
-
Depreciation
3,622
3,767
7,389
3,933
-
-
-
R&D expense
1,174
1,270
2,444
1,372
-
-
-
Source: Shared Research based on company data Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Parent
FY03/21
FY03/22
FY03/23
(JPYmn)
1H
2H
FY
1H
2H
FY
1H Est.
2H Est.
FY Est.
Sales (parent)
10,041
14,223
24,264
19,025
22,095
41,120
25,200
29,800
55,000
YoY
-4.6%
53.6%
22.6%
89.5%
120.0%
69.5%
32.5%
56.6%
33.8%
Operating profit
416
2,157
2,573
3,744
4,614
8,358
4,500
6,500
11,000
YoY
17.5%
8,196.2%
577.1%
800.0%
1,009.1%
224.8%
20.2%
73.6%
31.6%
Operating profit margin
4.1%
15.2%
10.6%
19.7%
20.9%
20.3%
17.9%
21.8%
20.0%
Recurring profit
537
2,227
2,764
3,832
4,870
8,702
4,700
6,500
11,200
YoY
-20.9%
1,217.8%
225.9%
613.6%
806.9%
214.8%
22.7%
69.6%
28.7%
Recurring profit margin
5.3%
15.7%
11.4%
20.1%
22.0%
21.2%
18.7%
21.8%
20.4%
Net income
388
1,480
1,868
2,638
3,907
6,545
3,000
4,500
7,500
YoY
53.4%
-
-
579.9%
907.0%
250.4%
13.7%
70.6%
14.6%
Net margin
3.9%
10.4%
7.7%
13.9%
17.7%
15.9%
11.9%
15.1%
13.6%
Capital expenditures
257
288
545
3,676
-
-
-
Depreciation
1,404
1,468
2,872
1,586
-
-
-
R&D expense
844
963
1,807
1,005
-
-
-
Factors driving OP change YoY
+62
+1,803
+2,193
+3,744
+4,614
+6,201
Higher sales
-263
+2,722
+2,459
+4,845
Change in contribution margins
-30
-38
-68
+307
Higher fixed manufacturing costs and other costs
+384
-78
+306
-1,028
Higher SG&A expenses
-29
-475
-504
-796
Source: Shared Research based on company data
Overview of company forecast
HDSI released new guidance for FY03/23. Its forecast is as follows:
Sales of JPY75.0bn (+31.4% YoY)
Operating profit: JPY13.0bn (+48.7% YoY)
OPM: 17.3% (+2.0pp YoY)
Recurring profit: JPY13.0bn (+42.7% YoY)
Net income attributable to owners of the parent: JPY9.0bn (+35.5% YoY)
The company forecasts EPS of JPY93.5, and plans an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).
The company sees sales reaching a record-high JPY75.0bn (beating the previous high of JPY67.8bn in FY03/19), based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history (at JPY13.0bn, versus a high of JPY16.6bn in FY03/19), but sees OPM remaining at 17.3% owing to higher depreciation costs accompanying capacity expansion and increases in other costs, as was the case in FY03/22. The projected OPM of 17.3% in FY3/23 is roughly 10pp lower than the record of 27.2% set in FY03/15.
Shared Research plans an update based on the forthcoming results briefing and contact with the company.
Geographical segments
By segment
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
(JPYmn)
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Est.
Sales
18,131
21,084
25,951
28,278
30,069
54,340
67,809
37,488
37,034
56,500
YoY
-10.1%
16.3%
23.1%
9.0%
6.3%
80.7%
24.8%
-44.7%
-1.2%
52.6%
Japan
15,362
17,899
22,534
23,428
25,495
35,351
45,327
18,613
22,114
-
YoY
-10.3%
16.5%
25.9%
4.0%
8.8%
38.7%
28.2%
-58.9%
18.8%
-
North America
2,769
3,184
3,417
4,850
4,575
5,482
6,814
6,241
5,145
-
YoY
-8.6%
15.0%
7.3%
41.9%
-5.7%
19.8%
24.3%
-8.4%
-17.6%
-
Europe
-
-
-
-
-
13,507
15,668
12,635
9,776
-
YoY
-
-
-
-
-
-
16.0%
-19.4%
-22.6%
-
Recurring profit
3,576
4,823
7,525
7,830
7,959
11,946
17,185
236
1,367
8,200
YoY
-18.7%
34.9%
56.0%
4.0%
1.6%
50.1%
43.9%
-98.6%
478.2%
499.9%
Recurring profit margin
19.7%
22.9%
29.0%
27.7%
26.5%
22.0%
25.3%
0.6%
3.7%
14.5%
Japan
4,134
5,523
8,076
8,570
8,878
13,909
17,298
2,488
4,809
YoY
-13.1%
33.6%
46.2%
6.1%
3.6%
56.7%
24.4%
-85.6%
93.3%
Recurring profit margin
26.9%
30.9%
35.8%
36.6%
34.8%
39.3%
38.2%
13.4%
21.7%
% of total
115.6%
114.5%
107.3%
109.5%
111.5%
116.4%
100.7%
1,052.6%
351.9%
North America
295
270
365
786
705
678
1,375
955
310
YoY
-36.5%
-8.4%
35.3%
115.5%
-10.3%
-3.8%
102.8%
-30.6%
-67.5%
Recurring profit margin
10.6%
8.5%
10.7%
16.2%
15.4%
12.4%
20.2%
15.3%
6.0%
% of total
8.2%
5.6%
4.8%
10.0%
8.9%
5.7%
8.0%
403.8%
22.7%
Europe
110
100
279
51
135
554
1,750
-800
-921
YoY
40.9%
-9.6%
179.7%
-81.7%
163.8%
310.5%
215.8%
-
-
Recurring profit margin
4.1%
11.2%
-6.3%
-9.4%
% of total
3.1%
2.1%
3.7%
0.7%
1.7%
4.6%
10.2%
-338.6%
-67.4%
Adjustments
-963
-1,070
-1,195
-1,578
-1,759
-2,913
-2,959
-2,406
-2,832
Source: Shared Research based on company data
Key group company earnings
Main group companies
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
(JPYmn)
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Act.
Est.
US subsidiaries
2,768
3,184
3,417
4,850
4,576
5,509
6,856
6,258
5,150
6,400
YoY
-8.6%
15.0%
7.3%
41.9%
-5.6%
20.4%
24.5%
-8.7%
-17.7%
24.3%
Net income
107
130
128
269
242
241
494
364
163
600
YoY
-29.6%
21.5%
-1.5%
110.2%
-10.0%
-0.4%
105.0%
-26.3%
-55.2%
268.1%
Net margin
3.9%
4.1%
3.7%
5.5%
5.3%
4.4%
7.2%
5.8%
3.2%
9.4%
Harmonic AD
1,726
1,887
2,102
2,241
2,377
2,781
3,371
1,779
1,706
2,900
YoY
-14.9%
9.3%
11.4%
6.6%
6.1%
17.0%
21.2%
-47.2%
-4.1%
70.0%
Net income
41
54
97
141
142
245
362
14
34
330
YoY
-39.7%
31.7%
79.6%
45.4%
0.7%
72.5%
47.8%
-96.1%
142.9%
870.6%
Net margin
2.4%
2.9%
4.6%
6.3%
6.0%
8.8%
10.7%
0.8%
2.0%
11.4%
China subsidiary
1,596
2,582
2,257
4,644
4,048
3,330
2,385
3,800
YoY
-
61.8%
-12.6%
105.8%
-12.8%
-17.7%
-28.4%
59.3%
Net income
245
306
-36
281
194
199
104
280
YoY
-
24.9%
-
-
-31.0%
2.6%
-47.7%
169.2%
Net margin
15.4%
11.9%
-1.6%
6.1%
4.8%
6.0%
4.4%
7.4%
Harmonic Drive SE
6,348
7,829
10,030
9,933
10,208
13,623
15,952
12,744
9,818
13,400
YoY
-18.0%
23.3%
28.1%
-1.0%
2.8%
33.5%
17.1%
-20.1%
-23.0%
36.5%
Net income
945
914
1,437
761
1,064
2,044
2,331
441
199
1,800
YoY
10.8%
-3.3%
57.2%
-47.0%
39.8%
92.1%
14.0%
-81.1%
-54.9%
804.5%
Net margin
14.9%
11.7%
14.3%
7.7%
10.4%
15.0%
14.6%
3.5%
2.0%
13.4%
USD/JPY
79.8
97.7
105.9
121.1
108.8
112.2
110.4
109.1
106.8
109.5
CNY/JPY
-
-
17.2
19.2
16.4
16.6
16.7
15.8
15.5
17.0
EUR/JPY
102.6
129.7
140.4
134.3
120.3
126.7
130.4
122.1
121.8
130.0
Source: Shared Research based on company data Note: Net income of US subsidiary is after deduction of minority interests while that of Harmonic Drive SE is before deduction of minority interests.
Parent company sales by application
By application
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
(JPYmn)
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Sales (parent)
16,159
18,585
23,030
23,741
26,748
38,982
49,249
19,788
24,264
41,000
YoY
-10.6%
15.0%
23.9%
3.1%
12.7%
45.7%
26.3%
-59.8%
22.6%
69.0%
Semiconductor production equipment
1,690
2,228
2,144
2,666
2,937
4,034
5,795
2,217
2,776
YoY
-26.5%
31.8%
-3.8%
24.3%
10.2%
37.4%
43.7%
-61.7%
25.2%
% of total
10.5%
12.0%
9.3%
11.2%
11.0%
10.4%
11.8%
11.2%
11.4%
Flat panel display equipment
936
1,499
1,317
1,553
2,169
2,596
2,811
640
769
YoY
-25.6%
60.1%
-12.1%
17.9%
39.7%
19.7%
8.3%
-77.2%
20.2%
% of total
5.8%
8.1%
5.7%
6.5%
8.1%
6.7%
5.7%
3.2%
3.2%
Industrial robot applications
5,883
6,056
9,940
9,979
12,525
21,347
26,265
8,885
13,110
YoY
-10.8%
2.9%
64.1%
0.4%
25.5%
70.4%
23.0%
-66.2%
47.6%
% of total
36.4%
32.6%
43.2%
42.0%
46.8%
54.8%
53.3%
44.9%
54.0%
Gear boxes (for electric motor manufacturers)
1,079
1,385
1,454
1,376
1,435
2,044
2,413
1,122
1,319
YoY
-17.8%
28.4%
5.0%
-5.4%
4.3%
42.4%
18.1%
-53.5%
17.6%
% of total
6.7%
7.5%
6.3%
5.8%
5.4%
5.2%
5.3%
5.7%
5.4%
Machine tools
1,232
1,285
1,576
1,972
1,691
2,024
2,632
1,261
1,160
YoY
-7.6%
4.3%
22.6%
25.1%
-14.2%
19.7%
30.0%
-52.1%
-8.0%
% of total
7.6%
6.9%
6.8%
8.3%
6.3%
5.2%
4.9%
6.4%
4.8%
Oil-drilling equipment
843
993
1,449
384
168
521
923
238
134
YoY
41.9%
17.8%
45.9%
-73.5%
-56.3%
210.1%
77.2%
-74.2%
-43.7%
% of total
5.2%
5.3%
6.3%
1.6%
0.6%
1.3%
1.9%
1.2%
0.6%
Optomechanical equipment
533
650
668
688
856
1,053
985
396
485
YoY
5.4%
22.0%
2.7%
3.1%
24.3%
23.0%
-6.4%
-59.8%
22.6%
% of total
3.3%
3.5%
2.9%
2.9%
3.2%
2.7%
2.0%
2.0%
2.0%
Measuring test instrument
291
353
345
356
374
390
492
198
243
YoY
-19.5%
21.4%
-2.2%
3.1%
5.2%
4.1%
26.3%
-59.8%
22.6%
% of total
1.8%
1.9%
1.5%
1.5%
1.4%
1.0%
1.0%
1.0%
1.0%
Printing presses
162
167
138
166
134
156
295
119
146
YoY
-10.6%
3.5%
-17.4%
20.3%
-19.5%
16.6%
89.5%
-59.8%
22.6%
% of total
1.0%
0.9%
0.6%
0.7%
0.5%
0.4%
0.6%
0.6%
0.6%
Cargo transporters
65
74
69
47
53
39
49
20
24
YoY
-28.5%
15.0%
-7.1%
-31.3%
12.7%
-27.1%
26.3%
-59.8%
22.6%
% of total
0.4%
0.4%
0.3%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
Other
3,446
3,893
3,929
4,552
4,405
4,779
6,588
4,693
4,098
YoY
-2.7%
13.0%
0.9%
15.9%
-3.2%
8.5%
37.9%
-28.8%
-12.7%
% of total
21.3%
20.8%
17.0%
19.2%
16.5%
12.2%
13.4%
23.7%
16.9%
Source: Shared Research based on company data Note: Full-year sales figures are calculated using quarterly or half-year sales or sales weightings, so may differ from company materials.
Historical performance vs. estimates
Results vs. Initial Est.
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/22
FY03/23
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
Sales
Initial Est.
21,000
24,500
29,000
30,000
49,500
68,500
42,000
-
52,000
75,000
Act.
21,084
25,951
28,278
30,069
54,340
67,809
37,488
37,034
57,088
Results vs. Initial Est.
0.4%
5.9%
-2.5%
0.2%
9.8%
-1.0%
-10.7%
-
9.8%
Operating profit
Initial Est.
4,700
6,400
7,800
8,200
12,000
17,400
1,000
-
6,600
13,000
Act.
4,668
7,067
7,618
7,814
12,316
16,624
-195
866
8,740
Results vs. Initial Est.
-0.7%
10.4%
-2.3%
-4.7%
2.6%
-4.5%
-119.5%
-
32.4%
Recurring profit
Initial Est.
4,930
6,600
8,400
8,900
12,000
17,600
1,000
-
6,700
13,000
Act.
4,823
7,525
7,830
7,959
11,946
17,185
236
1,367
9,108
Results vs. Initial Est.
-2.2%
14.0%
-6.8%
-10.6%
-0.4%
-2.4%
-76.4%
-
35.9%
Net income
Initial Est.
2,900
4,200
5,500
6,000
7,300
11,500
50
-
4,700
9,000
Act.
2,994
4,834
5,002
19,732
7,777
11,322
-1,095
662
6,644
Results vs. Initial Est.
3.2%
15.1%
-9.1%
228.9%
6.5%
-1.5%
-
-
41.4%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: On May 14, 2021, the company announced revisions to its past financial results. The figures provided in this table reflect retroactive changes.
Medium-term management plan
Medium-term management plan
FY03/21
FY03/22
FY03/24
3-year
(JPYmn)
FY
Targets
Targets
CAGR
Sales
37,034
52,000
70,000
+23.6%
YoY
-1.2%
40.4%
Japan
22,114
34,500
47,500
+29.0%
YoY
18.8%
56.0%
North America
5,145
5,500
7,500
+13.4%
YoY
-17.6%
6.9%
Europe
9,776
12,000
15,000
+15.3%
YoY
-22.6%
22.8%
Operating profit
866
6,600
15,000
+158.7%
YoY
-
662.2%
Operating profit margin
2.3%
12.7%
21.4%
Net income
662
4,700
10,500
+151.2%
YoY
-
609.4%
Net margin
1.8%
9.0%
15.0%
Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: On August 6, 2021, the company announced a revision to its full-year FY03/22 earnings forecast. The table above reflects figures as of May 14, 2021.
Overview of medium-term management plan and company status post-announcement
On May 14, 2021, the company announced a new medium-term management plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn and operating profit of JPY15.0bn. However, with the upward revision of the forecast for
FY03/22 at the time of Q1 results, the plan is on track to being achieved roughly one year ahead of schedule. The medium-term plan
does not make use of a rolling approach where a new yearly update is added
every term. As such, Shared Research understands that the current situation
may lead to inconsistencies between the medium-term plan and the latest
results.
In October 2021, five months after the announcement of the current medium-term management plan in May 2021, the company announced that it would increase the production capacity of its mainstay product, the Harmonic Drive strain wave gearing system, in Japan. The company plans to invest approximately JPY6.5bn between March and August 2022 to increase production capacity at the Ariake Plant (Nagano Prefecture, Japan) from the current level of 150,000 units per month to 220,000 units per month (based on the combined production capacity of the Ariake Plant and Hotaka Plant after August 2022). The breakdown of the capacity increase (70,000 units/month) is 40,000 units/month for industrial machinery and 30,000 units/month for automotive applications.
The current medium-term management plan does not include any not planned any significant capital investment to increase production capacity. Shared Research expects the current mid-term plan to be updated to reflect the announcement of results for FY03/22 and the impact of planned increase in the domestic capacity (scheduled for May 2022).
Shared Research wrote the section below in response to the current medium-term management plan, which was released in May 2021. As mentioned above, the company's medium-term management plan remains active, even though there is a divergence from current results. We have decided to leave it as is for the time being, with a view to comparing and verifying it against the previous one when HDSI next reviews it. When the company releases a revised plan, it will be updated right away.
Recap of previous medium-term plan (announced in May 2018)
The current medium-term plan was re-written in light of the version released in May 2018 having been abandoned part-way through. Since it includes related factors, we will
first review the content and results of the previous medium-term plan.
On May 11, 2018, the company announced a three-year medium-term plan covering FY03/19–21. It set the plan to end in FY03/21, mindful that 2020 was its 50th anniversary. When it formulated the plan, orders were strong and continued to outstrip the company’s existing production capacity. In fact, the FY03/18 results announcement coinciding with the plan announcement marked the fifth consecutive year of sales and operating profit growth, with sales of JPY54.3bn (+80.7% YoY) and operating profit of JPY12.3bn (+57.6% YoY). Results significantly exceeded forecasts announced with the medium-term plan in May 2015, with sales of JPY54.3bn (initial forecast: JPY35.0bn) and operating profit of JPY12.3bn (initial forecast: JPY9.5bn).
In light of this earnings growth and expectations of another record profit in FY03/19, the company unveiled a growth oriented medium-term plan in May 2018. It outlined the following core strategies: 1) To significantly increase global production capacity; 2) To improve group company capabilities and strengthen all-around ability; 3) To increase customer satisfaction by improving QCDS; 4) To strengthen the company’s management base; and 5) To lay the foundations for future expansion.
The plan included FY03/21 (final year) targets of JPY100.0bn in sales (three-year CAGR of 22.5%), JPY26.0bn in operating profit (27.3%), OPM of 26%, and JPY17.0bn in net income (28.2%). This projected sales to increase by 84% and operating profit to more than double in the three years from FY03/18. The company thought these figures were eminently achievable at that time.
However, soon after the plan was launched (Q1 FY03/19), orders started turning downward with declines of greater than 50% YoY. This was the result of: 1) constrained and delayed capex-related demand (especially in China) amid the eruption of US-China trade friction and international political issues; 2) excess inventories at customers and distributors (which took over a year to clear); and 3) the impact of the COVID-19 pandemic (disrupting production activities).
Ultimately, in FY03/19, the first year of the previous plan, the company was able to achieve record sales and operating profit as it fulfilled its existing order books. However, in FY03/20, the full impact of falling orders started from Q1, and operating profit turned to the red in just a year amid a harsh earnings environment. Despite subsequent cost cuts the company missed its initial FY03/21 targets of sales of JPY100.0bn and operating profit of JPY26.0bn by a wide margin, posting sales of JPY37.0bn and operating profit of JPY866mn.
Expanded production capacity
As outlined, there was little sense of achievement in the previous medium-term plan, as the company missed initial targets and fell into operating losses in FY03/20, but there was solid progress in one area: capacity expansion. In order to meet robust demand, the company boosted output capacity for its mainstay strain wave gearing (Harmonic Drive®) product from 85,000 units monthly in April 2018 to 100,000 in 2019 (normal operating hours; 130,000 including overtime). It also built a new plant (Ariake Factory) with monthly capacity of 100,000 units for a total capacity of 200,000 (normal operating hours). It also lifted its capacity in Europe (Germany) from 10,000 units per month to 15,000. Ultimately, the company did not have a chance to boost output in line with the capacity increase in the previous medium-term plan, but established a solid platform for increased production. The company thinks it may have a chance to benefit from the increased production capacity in the new medium-term plan that began in May 2021 (see Medium-term management plan section for details).
Production capacity for strain wave gearing (Harmonic Drive®) and cross roller bearings
Executive summary
Business overview
Harmonic Drive Systems is a manufacturer of mechanical components featuring compact precision speed reducer Harmonic Drive®, a strain wave gearing device, as its core product. In addition to producing and selling precision speed reducers with different mechanisms, such as the planetary gear reducers AccuDrive® and Harmonic Planetary®, the company sells mechatronics products that combine actuators and controllers. Its reducers, along with other devices such as servomotors and linear guides, are among the key devices used for precision positioning. To date, HDSI has accumulated production know-how, and there is no other manufacturer that can mass-produce strain wave gearings with the same precision and durability as HDSI, positioning the company as a global niche leader.
Key applications include industrial robots (54.0% of parent sales in FY03/21), semiconductor production equipment (11.4%), metalworking machinery (4.8%), motor gear boxes (5.4%), automotive parts (4.0%), and flat panel display (FPD) production equipment. Sales by region (by destination) are 59.7% to Asia including Japan, 26.4% to Europe, and 13.9% to North America. However, the company’s customers (industrial machinery manufacturers, etc.) sell products globally, and orders and sales tend to fluctuate in line with global capital investment trends.
The company supplies high value-added products as a global niche leader, and Shared Research estimates marginal profit ratio to be around 55% at the parent level. Since the capital investment cycle is more volatile than the overall economic cycle and the company generates a high marginal profit ratio, its earnings fluctuate significantly depending on capital investment trends. Its most recent peak performance was in FY03/19 with sales of JPY67.8bn, operating profit of JPY16.9bn, and net income of JPY11.6bn, all of which were record highs.
HDSI aims to boost demand for its products by proposing new applications to its main customers, while also developing applications for industries with demand cycles that differ from the general capital investment cycle. The focus markets for the near term include collaborative robots, healthcare, space, and animatronics.
Earnings trends
FY03/22 earnings results: HDSI reported sales of JPY57.1bn (+54.1% YoY), operating profit of JPY8.8bmn (roughly 10.1x YoY), recurring profit of JPY9.1bn (roughly 6.7x YoY), and net income attributable to owners of the parent of JPY6.6bn (roughly 10.0x YoY). EPS was JPY69.0. Although the company achieved an earnings recovery with both sales and profit increasing YoY amid higher sales (stemming mostly from stronger orders for reducers, mainly for industrial robots) and lower costs, OPM was limited to 15.3%. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).
FY03/23 forecast: The company forecasts sales of JPY75.0bn (+31.4% YoY), operating profit of JPY13.0bn (+48.7% YoY), recurring profit of JPY13.0bn (+42.7% YoY), net income attributable to owners of the parent of JPY9.0bn (+35.5% YoY), and EPS of JPY93.5. The company sees sales reaching record high levels, based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history, but sees OPM remaining at 17.3% owing to higher upfront costs associated with capacity expansion. The company forecasts an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).
On May 21, 2021, the company announced a new medium-term plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn, operating profit of JPY15.0bn, OPM of at least 20%, and ROE of least 10%. Given that the company did not achieve the targets in its previous medium-term plan, partly due to US-China trade friction, it prioritized achievable forecasts. The company sees promising markets for its products as collaborative robots (co-bots), semiconductor production equipment, automotive components, surgical assistance robots, electronic vertical takeoff and landing (eVTOL) vehicles, and the space industry, in addition to FA robots, a long-standing market for the company. However, Shared Research expects this plan to be comprehensively updated in May 2022 to reflect the subsequently announced plans for expansion of production capacity.
Strengths and weaknesses
HDSI’s strengths include its core HarmonicDrive® product technology, the secular growth of markets for its products, and its solid financial position. On the other hand, the company’s weaknesses include volatile short-term sales trends, small batch production limiting growth, and limited ability to develop and market new products (see Strengths and weaknesses section below).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: EPS " data-candidates="[{"type":2,"companyId":null,"_id":"62622f47ff7cb5c862e6af3b","en":"EPS "}]" class="translated-term">EPS and dividend per share figures for FY03/15 have been adjusted for the 3-for-1 stock split that took place on October 1, 2014.
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Trends and outlook
Quarterly orders (parent)
Note: Figures may differ from company materials due to differences in rounding methods.
Quarterly trends and results
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Full-year FY03/22 results (out May 13, 2022)
Full-year results summary
Full-year FY03/22 results were as follows:
EPS was JPY69.0. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).
Both sales and profit surpassed the company's forecasts, driven by higher orders for mainstay reducers, mainly for the industrial robots sector (especially in China) and the SPE sector, which offset lackluster demand from the automotive sector. Operating profit grew roughly 10.1x YoY, on the back of the aforementioned growth in sales, as well as cost reductions and yen devaluation. However, OPM recovered no further than 15.3%, owing to higher depreciation costs accompanying capacity expansion, increased transportation costs, and growth in R&D expenditure. Back in FY03/19, before US-China trade tension escalated, HDSI had an OPM of 24.5%, and the five-year average for FY03/15–19 was 25.7%.
Q4 (January–March 2022, three months) results summary
Q4 FY03/22 (January–March 2022) results were as follows:
On a quarterly (three-month) basis, sales and operating profit both increased YoY for the sixth consecutive quarter. Despite YoY growth in both sales and profit, OPM recovered no further than 14.3%, owing to higher depreciation costs, increased transportation costs, and growth in R&D expenditure.
Orders (non-consolidated) rose 1.0% YoY to JPY13.1bn in Q4. Although growth was maintained on a YoY basis, orders were down from JPY18.4bn in Q1 (April–Jun 2021), JPY21.5bn in Q2 (July–September 2021), and JPY19.2bn in Q3 (October–December 2021). Due in large part to seasonal factors, though, Q4 orders were the third highest for a single quarter.
Shared Research plans an update based on the forthcoming results briefing and contact with the company.
FY03/23 company forecast
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Overview of company forecast
HDSI released new guidance for FY03/23. Its forecast is as follows:
The company forecasts EPS of JPY93.5, and plans an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).
The company sees sales reaching a record-high JPY75.0bn (beating the previous high of JPY67.8bn in FY03/19), based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history (at JPY13.0bn, versus a high of JPY16.6bn in FY03/19), but sees OPM remaining at 17.3% owing to higher depreciation costs accompanying capacity expansion and increases in other costs, as was the case in FY03/22. The projected OPM of 17.3% in FY3/23 is roughly 10pp lower than the record of 27.2% set in FY03/15.
Shared Research plans an update based on the forthcoming results briefing and contact with the company.
Note: Net income of US subsidiary is after deduction of minority interests while that of Harmonic Drive SE is before deduction of minority interests.
Note: Full-year sales figures are calculated using quarterly or half-year sales or sales weightings, so may differ from company materials.
Historical performance vs. estimates
Note: Figures may differ from company materials due to differences in rounding methods.
Note: On May 14, 2021, the company announced revisions to its past financial results. The figures provided in this table reflect retroactive changes.
Medium-term management plan
Note: Figures may differ from company materials due to differences in rounding methods.
Note: On August 6, 2021, the company announced a revision to its full-year FY03/22 earnings forecast. The table above reflects figures as of May 14, 2021.
Overview of medium-term management plan and company status post-announcement
On May 14, 2021, the company announced a new medium-term management plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn and operating profit of JPY15.0bn.
However, with the upward revision of the forecast for FY03/22 at the time of Q1 results, the plan is on track to being achieved roughly one year ahead of schedule. The medium-term plan does not make use of a rolling approach where a new yearly update is added every term. As such, Shared Research understands that the current situation may lead to inconsistencies between the medium-term plan and the latest results.
In October 2021, five months after the announcement of the current medium-term management plan in May 2021, the company announced that it would increase the production capacity of its mainstay product, the Harmonic Drive strain wave gearing system, in Japan. The company plans to invest approximately JPY6.5bn between March and August 2022 to increase production capacity at the Ariake Plant (Nagano Prefecture, Japan) from the current level of 150,000 units per month to 220,000 units per month (based on the combined production capacity of the Ariake Plant and Hotaka Plant after August 2022). The breakdown of the capacity increase (70,000 units/month) is 40,000 units/month for industrial machinery and 30,000 units/month for automotive applications.
The current medium-term management plan does not include any not planned any significant capital investment to increase production capacity. Shared Research expects the current mid-term plan to be updated to reflect the announcement of results for FY03/22 and the impact of planned increase in the domestic capacity (scheduled for May 2022).
Shared Research wrote the section below in response to the current medium-term management plan, which was released in May 2021. As mentioned above, the company's medium-term management plan remains active, even though there is a divergence from current results. We have decided to leave it as is for the time being, with a view to comparing and verifying it against the previous one when HDSI next reviews it. When the company releases a revised plan, it will be updated right away.
Recap of previous medium-term plan (announced in May 2018)
The current medium-term plan was re-written in light of the version released in May 2018 having been abandoned part-way through. Since it includes related factors, we will first review the content and results of the previous medium-term plan.
On May 11, 2018, the company announced a three-year medium-term plan covering FY03/19–21. It set the plan to end in FY03/21, mindful that 2020 was its 50th anniversary. When it formulated the plan, orders were strong and continued to outstrip the company’s existing production capacity. In fact, the FY03/18 results announcement coinciding with the plan announcement marked the fifth consecutive year of sales and operating profit growth, with sales of JPY54.3bn (+80.7% YoY) and operating profit of JPY12.3bn (+57.6% YoY). Results significantly exceeded forecasts announced with the medium-term plan in May 2015, with sales of JPY54.3bn (initial forecast: JPY35.0bn) and operating profit of JPY12.3bn (initial forecast: JPY9.5bn).
In light of this earnings growth and expectations of another record profit in FY03/19, the company unveiled a growth oriented medium-term plan in May 2018. It outlined the following core strategies: 1) To significantly increase global production capacity; 2) To improve group company capabilities and strengthen all-around ability; 3) To increase customer satisfaction by improving QCDS; 4) To strengthen the company’s management base; and 5) To lay the foundations for future expansion.
The plan included FY03/21 (final year) targets of JPY100.0bn in sales (three-year CAGR of 22.5%), JPY26.0bn in operating profit (27.3%), OPM of 26%, and JPY17.0bn in net income (28.2%). This projected sales to increase by 84% and operating profit to more than double in the three years from FY03/18. The company thought these figures were eminently achievable at that time.
However, soon after the plan was launched (Q1 FY03/19), orders started turning downward with declines of greater than 50% YoY. This was the result of: 1) constrained and delayed capex-related demand (especially in China) amid the eruption of US-China trade friction and international political issues; 2) excess inventories at customers and distributors (which took over a year to clear); and 3) the impact of the COVID-19 pandemic (disrupting production activities).
Ultimately, in FY03/19, the first year of the previous plan, the company was able to achieve record sales and operating profit as it fulfilled its existing order books. However, in FY03/20, the full impact of falling orders started from Q1, and operating profit turned to the red in just a year amid a harsh earnings environment. Despite subsequent cost cuts the company missed its initial FY03/21 targets of sales of JPY100.0bn and operating profit of JPY26.0bn by a wide margin, posting sales of JPY37.0bn and operating profit of JPY866mn.
Expanded production capacity
As outlined, there was little sense of achievement in the previous medium-term plan, as the company missed initial targets and fell into operating losses in FY03/20, but there was solid progress in one area: capacity expansion. In order to meet robust demand, the company boosted output capacity for its mainstay strain wave gearing (Harmonic Drive®) product from 85,000 units monthly in April 2018 to 100,000 in 2019 (normal operating hours; 130,000 including overtime). It also built a new plant (Ariake Factory) with monthly capacity of 100,000 units for a total capacity of 200,000 (normal operating hours). It also lifted its capacity in Europe (Germany) from 10,000 units per month to 15,000. Ultimately, the company did not have a chance to boost output in line with the capacity increase in the previous medium-term plan, but established a solid platform for increased production. The company thinks it may have a chance to benefit from the increased production capacity in the new medium-term plan that began in May 2021 (see Medium-term management plan section for details).